Electoral bonds case: Live updates from Supreme Court | Day 1

CJI Chandrachud points out that this is a matter of policy.

In response, Pasha says that policy is subject to the doctrine of manifest arbitrariness if it is so absurd.

Pasha submits– ‘This results in the absurdity that while we do not permit investments by an entity which has 51% foreign shares in let us say media...because we do not want foreign control of our media. But we have no problem in allowing such a company to purchase bonds and transfer them to political parties that run the country’.

Pasha submits that the scheme is manifestly arbitrary. He points out that cash is notably absent from forms of purchasing electoral bonds and thus, the question of black money coming into the system has been cut out at the inception itself.

Farasat submits– ‘This scheme is an alternative white money channel created by the government....By definition, it cannot deal with black money. It can only deal with money which a person can disclose as white money.’

Farasat adds– ‘The principle of one man one vote is not just about me casting my vote. It entitles me to claim equal representation, and equal influence over the democratic process, and to show that my views have equal worth in the system. This scheme changes that by shifting the gravity from the elected public to somewhere else in the political discourse and influence without the public even knowing about it.’

Farasat also points out that the scheme violates the right to conscience under Article 25 of the Constitution of individual shareholders because they are unaware of what their money is being used for.

‘A person with X conscience may not want to fund a right-wing party. A person with Y conscience may not want to fund a left-wing party. It may infringe on his conscience to use his property to support and fund a particular party’, he adds.

Farasat submits– ‘The architecture and effect of the electoral bonds scheme is not to reduce black money but to re-route non-anonymous banking channel funding to anonymous electoral bonds. The legally ordained informational black hole that this creates - goes against the concept of an informed electorate under Article 19(1)(a) read with Article 326 of the Constitution.’

CJI Chandrachud says– ‘As per the report of the ADR, your party has got some electoral bonds also.’

Responding to this, Farasat says– ‘ No my Lords. We just responded saying we have not taken any Electoral Bonds.’

Farasat: ‘We are the only political party here. Despite being a ruling party, we have taken a principled stance not to accept any electoral bond. We have not taken a single rupee in electoral bonds in the past 5.5 years at much cost to us.’

Sibal argues – ‘No free and fair elections because of how heavily it is loaded towards the party in power. So you are creating a non-level playing field....If the voice of the corporate sector drowns the voice of the citizens - that is very dangerous.’

Pointing out how the scheme lacks a definite objective, Sibal submits–

‘If I do not get to know the name of the donor, I cannot know of the transaction, I cannot know the possible quid pro quo. I cannot participate in democracy. I cannot raise questions in Parliament. I cannot raise questions outside the parliament. The scheme has no definite objective.’

Citing an example to show how electoral bonds can be used for trading, CJI Chandrachud says–

‘Suppose A purchases a bond worth Rs 100 crores. A is only the person who is being put up to purchase the bond because A has KYC etc. A has to only physically hand over the bond to B. B gives it to C who will in turn give to a party. Now there is no control over the transaction between A and B. So B can trade on that bond for cash or for other considerations. B acquires that bond. B gives it to C who hands it to a political party. So the person who has satisfied the requirement of transaction being through normal banking channels is A. But this does not obviate the people behind it...all they have to say is that they have used authorised banking channels. Trading is prohibited. But there is no way to prohibit trading the bond.’

Sibal adds– ‘All this anonymity is really not anonymous because the person who donates will go and tell him orally that I gave you such and such money....What is anonymous about this? This is protecting the rich.’

Highlighting the difference in disclosure obligations between a citizen and the corporate sector, Sibal submits– ‘ The corporate sector is not the voter. The citizen is the voter. The corporate sector which does not vote, can donate Rs 10 crores and not disclose. What is the rationale for that? As a citizen, my name will be disclosed. So is the corporate sector being granted a privilege of anonymity over the citizen? ‘

Sibal says that the nature of the electoral bonds scheme protects those who have committed a crime.

He adds – ‘This is a scheme to protect criminals from being prosecuted. Please read Section 7 of the Prevention of Corruption Act. This is also true under the Prevention of Money Laundering Act. Because a predicate offence has been committed but no proceeds of crime - you will never know. Rather than furthering the rule of law, it stymies it. You never know who bribed whom, how much was the bribe, what quid pro quo was there.’

CJI Chandrachud points out that there is also no spending requirement.

To this, Sibal submits– ‘None! You can spend this money, however. You can build your office. You can set up a whole internet network throughout the country. You can use an advertising campaign. Show your face 20 times a day.’

Sibal points out that electoral bonds are a means for enriching the political party and have no relation to its participation in the electoral process.

‘The nomenclature suggests that electoral bonds are a means for the purpose of elections. There is nothing in the scheme which connects the donations made to the participation in the electoral process. It is a means for political parties to be enriched. I make a donation of Rs 10 crores to a political party through Electoral Bonds. The party can give it to a mainstream media channel and say propagate my ideology or give a present to someone’, he adds.

Sibal contends– ‘ The electoral process must be such that it provides a level playing field to all participants. Fair and free elections is the basic structure of the Constitution.’

Sibal submits– ‘Capital and influence go hand in hand. In fact, in the very concept of a market economy - capital symbolises power. And it may be in any sector of the economy as it is in politics. The more capital you have the more power you get.’

CJI Chandrachud points out – ‘In the case of a company, now even shareholders will not be told who you are contributing to. The shareholders will only be given the net result that we have given 250 crores as donations.’

Bhushan submits– ‘Earlier you could be prosecuted for corruption if you had given donations to a political party who in turn had given you some favours in terms of mining contracts etc. But now because no one will know as to who has donated, whether you have received quid pro quo. It is promoting corruption.’

Justice Khanna points out that even in the earlier regime, the donations to the ruling party would always be more sizeable in number compared to non ruling party.

Addressing Mr. Bhushan, CJI Chandrachud adds– ‘Another point you may want to also explore is that this is not an anonymised donation in relation to a donee. It is an anonymised donation in relation to the rest of society. The donee may or may not but could know of the sources.’

Adding on to Mr. Bhushan’s arguments, CJI Chandrachud remarks–

‘In the erstwhile regime, prior to Electoral Bonds, corporates could make contributions as well. But it was 7.5% of the total profit. The difference was that you had a duty to disclose. By disclosure, there could be public scrutiny of whether this is really a quid pro quo. This instrument of anonymised donations is promoting corruption. A corruption-free society is part of Article 21 of the Constitution. It is eroding democracy itself. It is skewing the level playing field.’

Bhushan says that unequal use of money power has been universally recognised by various bodies and prior judgments of this court as something that erodes the concept of free and fair elections.

‘Electoral Bonds are further making the level playing field unequal. Almost all bonds- 99.9% have gone to the ruling party at the Centre and States. Only one party- the CPM, which is before this court has consciously refused to take electoral bonds’, he adds.

CJI Chandrachud summarises Mr. Bhushan’s arguments by saying –

‘So we can formulate it like this- that a party in power is in a much more vantage position to secure a greater amount of funding through electoral bonds because of its ability to dole out a quid pro quo in the form of government contracts, leases, licenses, concessions. Therefore, by concentrating the allocation of Electoral Bonds to the party in power- this is a very important source of perpetrating power and therefore it is contrary to democracy. That can be your submission.’

Bhushan says that as per the Law Commission, financial superiority translates into electoral advantage and thus richer candidates and parties have a greater chance of winning an election.

Read the Law Commission’s report on electoral reforms here.

CJI Chandrachud says addressing Mr. Bhushan– ‘...perhaps we will keep individual cases out of reckoning. The reason is those companies are not before us. Any observation we make about the companies may implicate them of criminal wrongdoing. So we will take it as an illustration to buttress your argument.’

Bhushan submits– ‘IFP Agro Industries Ltd made this disclosure under the LODR requirements of SEBI. They have given an indication that the company has given Electoral Bonds because the company was facing excise issues.’

IFB Agro Industries approves contributions to political parties by way of subscription to electoral bonds

Board approves contributions aggregating not more than ₹40 crore for FY23; says in filing that decision was taken “in the best interest of the company and all its stakeholders”

Bhushan says that there are a number of mining contracts that Vedanta has obtained and that it is also a large donor of electoral bonds. He argues that there is substantial indication that electoral bonds are being given by way of kickbacks to influence government decisions and policies.

Bhushan refers to a report by an International Investigative Group ‘Organized Crime and Corruption Reporting Project’ (OCCRP) titled​ ‘Inside Indian Energy and Mining Giant Vedanta’s Campaign to Weaken Key Environmental Regulations’​ that revealed backroom lobbying between Vedanta and the Union government where key environmental regulations were modified in favour of Vedanta who has been an important donor to the BJP.

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Inside Indian Energy and Mining Giant Vedanta's Campaign to Weaken Key Environmental Regulations - OCCRP

As the COVID-19 pandemic swept across India, major mining and oil company Vedanta quietly lobbied the government to dilute environmental safeguards regulating the oil and mining industries.

Bhushan submits– ‘While various newspaper portals have reported that Vedanta is facing a severe financial crisis as it is under debt, it is still donating hundreds of crores in donations. The same raises concerns as to why such high donations are being made when the company is in debt’.

Bhushan refers to a Business Standard report that states that Vedanta Limited, a multinational mining company, has donated Rs 457 crores in the last 5 years to political parties through electoral bonds.

‘It is interesting to note that in FY23, Vedanta Limited has been declared as the preferred bidder for various mining licenses, namely Bicholim iron ore block in Goa, Sijimali bauxite and Ghogharpalli coal blocks in Odisha, and Kelwar Dabri in Chhattisgarh’, he adds.

Vedanta Electoral Bonds: Donated Rs 155 cr to political parties in FY23

Vedanta's donation in FY23 was higher than Rs 123 crore in FY22; between 2018 and 2022, the BJP received Rs 5,270 crore, and the Congress received Rs 964 crore through electoral bonds

Bhushan says that the scheme allows even subsidiaries of foreign companies that have never carried out legitimate business in India to secretly funnel hundreds of crores to a political party. He adds that the bonds are fashioned in a way that the money could secretly change many hands to reach the ultimate political party.

Highlighting how electoral bonds are being used as kickbacks, Bhushan contends–

‘A company which is investing in a political party does so with an expectation that the receiver of such enormous funds which is either already a party in power or a party which ascends to power will bring favourable policies, legislations, orders. There is circumstantial evidence showing that it is being used as a kickback. You can easily get a kickback and get away by anonymizing the kickback.’

Bhushan submits – ‘The total donations declared by the BJP is more than three times the total donations declared by all other national parties put together. During the 6-year period, more than 52% of BJP’s total donations came from electoral bonds worth 271 crore’.

He refers to ADR’s report to argue that BJP, AITC, INC, and NCP collected 55.09% (₹1811.9425 cr) of their total income from donations through Electoral Bonds for FY 2021-22.

In FY 2019-20, when the Lok Sabha elections were conducted, political parties received over ₹920 crore in the form of corporate donations, according to a report by the Association for Democratic Reforms.

Read more here.

Data | Corporate donations to political parties: Which party received the most?

According to a report by the Association for Democratic Reforms, in FY 2019-20, when the Lok Sabha elections were conducted, political parties received over ₹920 crore in the form of corporate donations and Prudent Electoral Trust was the top contributor to the BJP and INC

Bhushan apprises the Bench about the electoral bonds declared by political parties in audit reports in the last 5 years.

‘BJP: 5271 crores. This was only up till 2021-22. After that, more than 3500 crores worth of bonds have been purchased, that is after the financial year 2021-22’, he adds.

Bhushan apprises the Bench that Brazil’s Supreme Court in 2015 banned corporate donations to political parties by a judicial order.

‘Instead of providing for greater transparency, we are removing whatever transparency that existed by this means’, he adds.

Bhushan reads from the Bombay High Court’s judgment in Jayantilal Ranchhoddas Koticha v. Tata Iron And Steel Co. Ltd (1957).

‘...Therefore, any proposal or suggestion which is likely to strangle that democracy almost in its cradle must be looked at not only with considerable hesitation but with a great deal of suspicion’. [Text from the judgment].

Between 2016-17 and 2021-22, the seven national and 24 regional parties received a total donation of ₹9,188.35 crore from Electoral Bonds out of which the BJP’s share was ₹5,271.9751 crore, while all other national parties together amassed ₹1,783.9331 crore, according to the report by the Association of Democratic Reforms (ADR).

Read more here.

Electoral Bonds chief source of donations for political parties: Report

More than 52% of the BJP’s total donations came from Electoral Bonds worth ₹ 5,271.9751 crore, while all other National parties amassed ₹1,783.9331 crore.

Bhushan argues – ‘Figures about electoral bonds show that one, they are almost all in denominations of 1 crore so they are largely being purchased by corporates, etc. Two, they are only being given to ruling parties. Bulk goes to the ruling parties at the centre- more than 50%; the remaining goes to ruling parties in the State, and virtually nothing goes to opposition parties.’

Bhushan submits– ‘If I know that this party is being funded by companies who are getting benefits from a political party- then I know this party is corrupt because it is essentially getting quid pro quo.’

Bhushan says that reasonable restrictions imposed upon a citizen’s fundamental right to know about the funding of political parties have to be proportionate and reasonable.

He adds – ‘..They have to be covered by one of the 6-7 things- public order etc. Funding of political parties cannot be covered by any one of those grounds mentioned under Article 19(1)(2).’

Bhushan says– ‘Political parties are playing a very important role in our democracy. They get a common symbol, they contest as parties, they form governments, they have a right under the tenth schedule of those who flout party mandates, and so on. If citizens have a right to know about the assets, liabilities, etc of candidates, they certainly have a right to know about parties as to who is funding them.’

In an affidavit filed before the Supreme Court in 2019, the ECI said that electoral bonds would wreck transparency in political funding and invite foreign corporate powers to impact Indian politics.

Here is The Hindu’s detailed explainer on the reservations expressed by the ECI and the RBI against the scheme.

The legality of the electoral bonds scheme | Explained

With the Supreme Court set to hear final arguments on the validity of the electoral bonds scheme on October 31, The Hindu looks at the contentious issues surrounding the legality of the scheme

There are two main petitions challenging the scheme — one jointly filed in 2017 by ADR and non-profit Common Cause, and another filed in 2018 by the Communist Party of India (Marxist). Congress leader Jaya Thakur has also moved the top court.

Here is The Hindu’s detailed explainer on why the petitioners are challenging the scheme.

Explained | The electoral bonds scheme and the challenges to it in Supreme Court

So far, from March 2018 to April 2022, over 18 thousand bonds worth over ₹9.8 thousand crore have been sold by the SBI in 20 tranches

Bhushan points out how the Election Commission of India (ECI) and the RBI had expressed reservations about the scheme. He says – ‘ECI has stated that this scheme was a retrograde step as far as transparency was concerned...”this opens up the possibility of shell companies being set up for the sole purpose of making donations to political parties...”.

Electoral bonds: Law Ministry, CEC objected to 1% vote share requirement

The documents, which were viewed by The Hindu, show that the Law Ministry recommended the imposition of a 6% vote share requirement or the removal of the vote share requirement entirely

Elaborating on how donors might be reluctant to disclose their identities, CJI Chandrachud remarks – ‘There is an assumption that if you disclose the name of the donor, there will be other political parties who will know that you contributed to this party..Suppose a donor is carrying out business in a state. If the name of donor is made available to all parties, the rival parties may say... especially if you are not donating to the political party in power.’

Attorney General of India R. Venkataramani has backed the government’s electoral bonds scheme in the Supreme Court, extolling it as a measure which promotes contribution of “clean money” to political parties. He said that citizens could not have a ‘general right to know anything and everything’.

Read more here.

Bhushan argues – ‘It destroys and disturbs democracy in the country. Because it does not allow a level playing field between political parties which are ruling versus opposition parties; or between political parties and independent candidates. In the last 5 years since the electoral bonds were introduced- 2017-18 to 2021-22- the contribution to political parties by way of electoral bonds has far exceeded than any other method.’

Bhushan says that the electoral bonds scheme violates the right of citizens to be informed about the sources of funding of political parties under Article 19(1)(a) of the Constitution.

‘This anonymous instrument promotes corruption because there is good reason to believe that these bonds are been given by way of kickbacks to parties in power. Almost all bonds have been received by the party in power’, he adds.

Apprising the court about how even shell companies can make donations through electoral bonds, Bhushan argues – ‘They removed the limit of 7.5% of the annual profit for companies. So even if you are a loss-making company or a company which does no business, a pure shell company - you can donate.’

Bhushan argues that electoral bonds are opaque instruments and nobody can come to know about the identity of the donor except the government.

‘The political party also may not come to know who has donated. It is open for the party to say - we opened our office in the morning and saw these 100 crores of bonds lying under our door. We deposited them, but we do not know who gave them. These are bearer bonds’, he adds.

Referring to the amendment brought about to the Companies Act, Bhushan says that previously there was a cap on the amount of corporate donations that any company could give to a political party which was done away with. He also says that now companies do not have to disclose which political parties they have donated to.

Advocate Prashant Bhushan appearing on behalf of the Association of Democratic Reforms urges the court to decide the case before the 2024 Lok Sabha elections.

‘I am challenging the amendment in FCRA (Foreign Contributions Regulation Act, 2010) by way of Finance Bill. Prior to that amendment, foreign contributions were prohibited to political parties and candidates and servants. By this amendment, it has held that any contribution made by way of donation through a subsidiary of a foreign company registered in India will be permitted’, he says.